Monday, October 27, 2014

Why Electric Rates Are Rising: My Op-ed

New England electricity is too dependent upon natural gas-fired power plants. And we are about to pay a lot for that dependence.

In recent days, several New England utilities have announced major price rises for electricity. In Massachusetts, National Grid said that its customers can expect a 37 percent rate increase in November. Liberty Utilities in New Hampshire announced that there will be a 50 percent rate increase, and Unitil, which serves Massachusetts, Maine and New Hampshire, announced a price rise that will add over $40 a month to the average home electricity bill. These companies explained that the rate increases are due to the increasing cost of power on the grid.

Why is the grid cost increasing? Part of the reason is supply and demand. Supply has decreased. Vermont Yankee (nuclear) and Salem Harbor in Massachusetts (coal) are shutting down and will not be available this winter. During the high demand resulting from the polar vortex in early 2014, New England needed about 20,000 megawatts of power. The grid barely scraped up enough to meet the demand. This year, 1,000 megawatts, or five percent of that power, is going off-line, and no new power plants have been built.

But perhaps a bigger problem is that the New England grid is far too dependent on natural gas. During the polar vortex cold snap, which affected all of New England, many natural gas power plants could not get enough gas to operate. It was being used to heat homes. New England is often described as “pipeline-constrained”: There are not enough pipelines for the natural gas we need.

The grid operator, ISO-NE, a nonprofit company, is responsible for ensuring a reliable electric supply on the New England grid. The way the grid operates is that some plants keep running steadily all the time. The steady-operation plants are nuclear, coal and some of the natural gas facilities — basically, plants that operate on a steam cycle. When demand is higher than these plants can supply, it is met by putting more gas-fired plants into service. However, last winter, many gas-fired plants could not operate.

ISO-NE foresaw this natural gas supply crunch and had a “winter reliability” program in place. It paid $70 million to oil-burning power plants to keep oil available to burn. This was a “capacity” payment. That is, the plants were paid just to have oil on hand. (This payment also increased our electric bills.) But during the polar vortex power crunch, the oil was not enough, and some jet fuel was also burned to make power. In other words, over-dependence on natural gas led to expensive alternatives: oil and jet fuel. Using these fuels caused major price increases.

Also, even without the crunch, the price of natural gas itself has doubled since its low point in 2012.

The two issues (supply and diversity of fuel sources) are going to intersect again this winter. With two power plants closed, a cold snap this winter will require more oil and jet fuel than was required last winter. Utilities are getting their rate increases lined up to deal with the coming price spike.

What about my own local utility? I live in Vermont, and Green Mountain Power (GMP) told the press recently that because of its “efficiencies” it has lowered prices and will keep them low.

I do not believe prices will stay low in Vermont. GMP is subject to the same factors that affect the other utilities. It buys much of its power on the same markets. GMP also has large contracts with Hydro Quebec. Unfortunately, these are “market-follow” contracts. When the market price rises on the grid, Hydro Quebec will also raise the price that it charges GMP. Back in 2010, I wrote blog posts on how the new market-follow contracts were “a bad deal with Hydro Quebec.” This winter, I suspect we will find out just how bad a deal they are.

What about renewables? For many reasons, renewable build-out is not happening very quickly. As of last year, less than 10 percent of Vermont’s in-state electricity generation was by renewables, not counting hydro.

Also, renewables are generally paired with natural gas (gas-fired plants are turned on when the wind dies down or the sun sets). So renewables are not going to be much help right now.

I was recently elected to be on the coordinating committee of the Consumer Liaison Group of ISO-NE. Along with 120 people from all over the Northeast, I attended its quarterly meeting in September. Everyone there seemed to have a tale of when the big price rises would hit their local utilities. Many are planning major price increases in January 2015.

What shall we do about these price spikes? Just as in our private lives, diversity is important. I think we need to be willing to accept diversity on the grid: nuclear plants and coal plants. Natural gas is an excellent fuel, but it seems to be the one and only fuel acceptable to many people. However, what is happening on the grid right now is a classic illustration of the old saying: “Don’t put all your eggs in one basket.” Our grid is close to just one basket right now (over 50 percent natural gas). The winter is coming, and power will be expensive if any eggs drop.
-----

Meredith Angwin of Wilder is a physical chemist who worked for electric utilities for more than 25 years and now heads the Energy Education Project of the Ethan Allen Institute.

-------

This op-ed was published on Oct 12, 2014 in the Valley News. Valley News artist Shawn Bradley provided a clever graphic of Reddy Kilowatt flipping a switch to raise rates. In honor of that graphic, I included a classic Reddy Kilowatt graphic on this post.